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Two Reasons You Should Ditch Your Big Bank And Try Out A Smaller Lender

Every time a major Canadian bank tweaks their mortgage rates, it makes headlines. Last month RBC dropped it’s five-year fixed-term mortgage rate by 0.15 percentage points (or 15 basis points) to 3.74 per cent. Every major news outlet in Canada picked it up.

Big banks never offer the lowest mortgage rates in the market, and those are the ones you want to pay attention to! Most Canadians are comfortable with staying with the big banking companies, or it could be that they are simply unaware that they can switch. Banks have a 90-per-cent stranglehold on the Canadian mortgage market and we’ve been slow to start paying attention to the alternative – often cheaper – options out there.

There is a whole industry of smaller, more competitive mortgage lenders and brokers who never make the headlines. They’re often just as established, reliable and significantly more affordable. Complacency is a big reason. A lack of knowledge is another.

  1. Brokers and smaller lenders often drop their rates first!

Beginning this past fall, the rates that lenders were borrowing at began to fall. For example, in November 2018, a five-year government of Canada bond was costing lenders 2.5 per cent in interest – it’s now costing them around 1.75 per cent. That reflects the cost of lending in the bond market, which helps influence fixed-rate mortgages. But the big banks are only recently starting to pass these savings onto Canadian consumers. Smaller lenders and brokers began lowering their mortgage rates ahead of the big banks in January – But you didn’t hear about those rate changes, because small lenders don’t make headlines.

2. Brokers and smaller lenders had lower rates to begin with!

Even if we put aside the fact that the big banks were inexcusably late with the recent rate drop, it still doesn’t make sense to stay with them. That’s because smaller lenders and brokers consistently offer mortgage rates that are way better than those posted by the banks.

Case in point: RBC’s news-making five-year fixed rate of 3.74 per cent would mean a monthly payment of $2,560 on a $500,000 mortgage (assuming a down payment of at least 20 per cent to avoid CMHC insurance, and a 25-year amortization period).

If you took that same buying scenario ($500,000 mortgage, no CMHC insurance, 25-year amortization period) and mapped it onto the best currently available five-year fixed-rate available in the market — which happens to be 3.23 per cent, at time of publication — you’d be looking at monthly payments of $2,426.

That’s monthly savings of $134. Might not seem like much, but over the course of the 25-year mortgage? You’re looking at saving $40,200 by ditching your bank.

Start by making sure that when you get a mortgage, you’re not just walking into the bank and taking the first rate they offer. Shop around and compare – hop online and see what competitors will offer you!

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